THE ECONOMY will grow more slowly this year than anticipated just three months ago, according to a report by the Economic and Social Research Institute (ESRI).
In the think tank’s quarterly analysis of expected economic conditions over the next two years, it also predicted that the number of people at work over the course of 2011 would be 24,000 lower than forecast in October last.
If the total number of jobs shrinks as predicted, 2011 will be the fourth consecutive year of declining employment. The cumulative fall in job numbers since employment in the Irish economy peaked in 2007 will have reached almost 300,000 by the end of the year. Expected emigration of 100,000 people (with 60,000 departing in 2011 and 40,000 in 2012) will prevent the rate of joblessness in the coming years rising from the peak of 13.5 per cent in 2010, according to the report.
The expected decline in employment and increase in emigration in 2011 will take place despite an expansion of the economy – forecast at 1.5 per cent, as measured by gross domestic product (GDP). In October, the ESRI believed GDP would grow by a more robust 2.25 per cent.
The Government has based its budget estimates on a GDP expansion of 1.75 per cent.
The institute’s forecast is now below that of the Government, but one of the report’s authors, Dr Alan Barrett, stressed that the differences were “marginal”. The ESRI’s findings may counteract criticisms that the Government’s forecasts are excessively optimistic.
By the narrower gross national product (GNP) measure, which excludes multinational profits among other things, the economy will barely expand according to the ESRI’s analysis. Its new 0.25 per cent growth forecast for 2011 is a fraction of the 2 per cent expansion the think tank anticipated just three months ago.
The downward revisions come despite a slightly more upbeat assessment of the Republic’s unusually large export sector in 2011. This year, the volume of goods and services sold abroad is expected to rise by 6 per cent on 2010, following an estimated 8 per cent increase last year.
In contrast to a more upbeat outlook for the export sector, the domestic economy in 2011 is expected to be weaker than the institute anticipated in late 2010.
The downgrading of its economic forecast has led the ESRI to conclude that the Government’s targets for cutting the budget deficit in 2011 will not be achieved. That said, the institute believes the target will be missed by a small margin only, and that the gap between Government income and spending in 2011 will fall below the “psychological” threshold of 10 per cent of GDP. In 2010, it reached a massive 31 per cent of GDP, of which two-thirds was accounted for by money pumped into the banks.
For the first time, the ESRI produced detailed forecasts for 2012. Next year, the institute expects an acceleration in GDP and GNP growth – 2.25 per cent and 1.5 per cent respectively.
The institute also foresees a slight increase in the numbers at work.